Stock Chartist

Commentary and recommendations about the stock market, sectors and individual stocks from a chartists perspective. Observations are based on the belief that "at their core, fundamentals are subjective but momentum is fact."

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October 5th, 2010

I often check in on the perma-bears at Slope of Hope where the resident guru, Tim, there was crying over his drinks about how September was such a disaster. He apologized for continually mostly seeing shorting opportunities; at one point last month he was almost 100% short. Fortunately, he was partially hedged by having some SPY but the market’s relentless ascent continued to cause major damage to his portfolio.

The message always was, “don’t despair, Slopers, this is only a temporary blip, a bear trap and the continuation of the bear market crash that will take the market down to 950 is just around the corner. I see it in my analogy to the 1930’s. Just hang in there with those shorts.”

What can I say other than that I’m not routing for them. On the contrary, the market is performing just as I had expected ever since Labor Day when I called the inverted head and shoulder. I’m ecstatic by today’s action (click on image to enlarge):

By touching the level where the two key trendlines converge, the market has now at one of the most crucial junctures it’s faced since the beginning of July. If it crosses above this convergence, it should smoothly move to 1220, my next price objective (that could be by year end). This has already happened with the larger-cap Dow Jones Industrials.

Let’s dream some more. Moving above 1220, the high of last April, would be the first time that the market was able to make a higher-high in a very long time and clears the way for an easy run to 1320.

But we’re way ahead of ourselves. The market could back off again and the congestion may continue through next week. But if we’re lucky, enough momentum is building to sustain a push through 1220 in the next week of two.

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I think Tim only recently and reluctantly bought SPY as "expensive insurance", he called it, in case of future rise.

Poor guy.

Anonymous

I wonder how often gloating by a market pundit is a sign of a change in their fortunes.

Joe

Purely a superstition and if you're superstitious you shouldn't be in the market at all.

Mike Masland

Joe,

Long time reader – first time poster. Your blog is fantastic.

Any insight into what we are seeing in the momentum stocks today? A momentum favorite, EQIX, got creamed today, which in turn is hurting many other tech momentum plays (VHC, NFLX, PCLN, LOGM, CRM).

Thank you.

-Mike

Joe

Mike, nice hearing from you but wish it were under more pleasant circumstances. I'm down a lot today also but look at it as some profit taking because tech stocks have been on a tear for the past several weeks.

For the time being, I don't see a complete reversal of trend. No telling how long this pause will last. Remember, we'll have to content with the waxing lunar phase kicking in tomorrow. This implies a couple of down weeks – if you believe in that sort of thing).

I just committed some more this morning in the belief that the next leg will carry the market to 1220.

Mike Masland

Thanks Joe. I greatly appreciate the feedback.

On the surface, the indexes certainly appear to be holding up well.

However, it feels a tad reminisent of summer '08 when the generals (agriculture/energy) began to crack. That was a warning shot of things to come.

I know, I know. That was a VERY different time, and the indexes were looking quite bearish (faltering at 200DMA overhead resistance on May 19, 2008).

Nonetheless, a couple of recent leaders (CRM, VMW, FFIV) look like short candidates rather than outperformers.

Anonymous

if there is one blog on the internet that is populated by people who think they are "smarter" than the market, and everyone else for that matter, it is the Slope of Hope.

Anonymous

Joe,,How much of your trading funds are in fixed income funds,,please advise,,

Joe

I have no fixed income securities, per se, but currently have about 15% in money market cash. This amount fluctuates according to my market timing rules.

If the S&P Index is able to cross 1164, I plan to be 100% long with no cash. A market decline below 1125 will cause the cash to increase to 25% by virtue of sales of long positions.

Subscribers to my Alert service can see specific purchases, sales and cash balances within a hour of my actually making the trade.

Anonymous

Interesting that you saw a possible high incidence of change in fortunes coinciding with a pundit's gloating as superstition. I saw it as a potential reversion to the mean kind of thing.